Do you want to protect and preserve for yourself and your loved ones the substantial estate you have worked so hard to build? At Panitz & Kossoff, LLP, our attorneys provide estate planning and probate representation to clients throughout Southern California, including Thousand Oaks, Malibu and Westlake Village.

Trusts

09/28/2018

It may be impossible to know when you’ll need long-term care, but chances are good that you will. Think Advisor’s recent article,“Making Sense of Long-Term Care Planning” says that statistics show that 70% of older Americans will need long-term care in their later years.

However, to some degree, an individual’s circumstances can predispose them to needing assistance. Some factors include:

Lifestyle choices that you’re making now that could factor into needing care;

Participation in risky hobbies or health-maintenance choices that could contribute to the onset of debilitating illness;

Ways in which you might reduce risk of injury or illness;

Home modifications you can make to better accommodate changes in mobility; and

Hereditary illnesses and conditions that increase your risk.

Not everyone qualifies for long-term care insurance, and those with certain health conditions could be denied long-term care insurance. Lifestyle choices that affect health conditions, can weigh into their projected need and planning.

To make wise financial decisions for meeting long-term care needs, begin with a realistic understanding of the cost of long-term care. Roughly 25% of all seniors will need to pay over $50,000 for long-term care. If someone choose to pay for in-home care, the national median annual cost of an in-home aide in 2017 was $48,000. For 24/7 care in your home in the Conejo Valley and surrounding areas, you can expect to pay $215,000 per year. If you choose to "employ" caregivers directly instead of going through an agency, you should consult with an employment attorney or you could end up paying a lot more than $215,000 per year if you fail to carry worker's compensation insurance, do not pay overtime when required, or fall into other traps that those not familiar with California employment law often face once they are sued by their former employees.

Unless you’re very wealthy, odds are you’ll need a safety net in place to cover long-term care costs. When deciding how to begin, review these factors:

How close are you to retirement?

What savings and insurance programs do you have to help pay for long-term care?

Do you have a plan to pay for the costs of long-term care?

It’s a common misconception that Medicare will pay for long-term care. It will not. There are several other ways to cover the cost of care:

Long-term care insurance. While you hear a lot about rising premiums on long-term care policies, it’s still a good move for many individuals, who fall into the gap between qualifying for Medicaid and being wealthy enough to afford long-term care outright.

Supplemental insurance. Some people may benefit from Medicare Supplement insurance or Medicare Advantage plans. Medicare Advantage plans are an alternative to Medicare Part A and Part B. Medicare Supplement insurance can help to pay for deductibles, co-payments, and other out-of-pocket expenses.

Prepay funeral costs. Funeral costs are big, and even with a good financial plan in place, paying for a funeral before the estate is settled, can create a financial hardship for loved ones. You can avoid that with a prepaid funeral plan.

Are there millions of other things you’d rather think about? Yes, but this is something that prior planning can make far easier for you and your loved ones. Call our office to discuss a life care plan with our attorneys and medical social worker, so we can help you assess what type of long-term care you can afford given your financial resources and you needs.

09/19/2018

Most of us are mindful about following the rules to avoid unnecessary penalties for savings and investment accounts with early withdrawal penalties. We might be missing out on some opportunities, says CNBC’s article, “Sometimes, early withdrawal penalties don't apply.” There are situations where the penalty may not apply to you, or the benefits of the withdrawal outweigh the penalty. Read the fine print, so that you know what the penalties are, and then do an analysis, instead of assuming an early withdrawal will become too costly. Just be mindful of what you are doing and don’t take money you are saving for retirement unnecessarily.

Certificates of Deposit. If your CDs are growing at less than 1% a year at a bank, but the bank across the street is offering annual returns of 1.72% on their certificates of deposit, you might consider an early withdrawal, despite a penalty of three months interest. Do the math: you might be ahead financially after three months, at the other bank's higher interest rate.

529 Plans. There's no early withdrawal from a 529 plan—the tax-advantaged account that can be used for education-related expenses. That’s because there are no rules as to when you can use the money. The rules stipulate only what you can use it for, which is just education-related expenses. There’s a penalty if you use it for other reasons. It’s a 10% tax penalty, as well as income taxes on the account's earnings. In many cases, the family’s no worse off than they'd be in a taxable account. However, you may have to repay the state income tax benefits you received for using the account. If your child does plan on going to college, the withdrawals will leave your savings with less time to compound.

Retirement savings. An early withdrawal from your retirement account is a huge black eye in personal finance. Using an individual retirement account (IRA) or 401(k) plan before the age of 59½ can mean a 10% penalty, income taxes, and a depleted fund for your retirement. There are several exceptions to the 10% penalty, eliminating that expense when you withdraw early from your retirement account. However, there's confusion about when the penalty does and does not apply. For example, if you decide to retire at 56, you can withdraw from your 401(k) without any penalty. However, if you roll it into an IRA, you'd have to wait until 59½ to have your money without consequences.

If the money is being used for serious medical expenses, or if there’s a medically documented disability, or death, penalties may be waived for 401(k) plans or IRAs. Using the funds to pay for health insurance while you’re unemployed is also permitted, and there are also rules for divorce. Check with your financial advisor and/or the financial institution for each account.

09/18/2018

A Gallup poll found that about half of Americans who are still working, don’t think they’ll have enough money to retire, but if you ask people who are already retired, 78% report that they do have enough money to live comfortably.

Failing to consider the effect of taxes on retirement income. You need to calculate how taxes could affect your savings. Some retirement savings plans are taxed, when they’re withdrawn. A big mistake many retirees make is believing that Social Security isn’t taxed, but 85% of Social Security can be taxed.

Failing to consider the effect of health care costs in retirement. This can be expensive and includes things like deductibles and out of pocket payments—not just the costs for a health care plan.

Failing to consider the effect of potential long-term care costs in retirement. It’s easy to forget to consider the day-to-day costs of long-term care, like assisted living, nursing homes, and in-home care. Medicare will pay for certain care for 30 days, but after that it has to come from your own savings.

Failing to have enough liquidity and an emergency fund. You need to have money invested appropriately for retirement, so it can be accessed when you need cash.

Having too much money tied up in your home. This isn’t a liquid investment, and if you have too much of your net worth tied up in your home, you may experience a lack of liquidity when you need it.

Failing to plan for Social Security. There are a lot of strategies for using Social Security to maximize the amount of money you’ll receive. You can begin receiving Social Security payments at age 62. However, if you wait, you’ll see more money.

Spending too much early in your retirement. Trips are nice, but your money has to last as long as you do! People who spend too much during the early part of their retirement years, can find themselves in a financial pinch later on.

Failing to assess your risk. You need to have risk-appropriate investments in retirement. Consider your risk tolerance, since being too risk averse could eat into the value of a savings plan.

Going it alone when it comes to an estate plan. An estate planning attorney will have the experience and insight to make sure that you and your family are protected from the inevitable: illness, disability, divorce, or death. Don’t leave this part out of your plan.

09/13/2018

If you work for a company with an ESPP, you may want to take advantage of the ability to get a discount on stock purchases, reports CNBC in the article, “What you need to know about your employee stock purchase plan.” This can be a good way to boost your bottom line and, depending on when you sell your holdings, may have some tax advantages.

While the operation and integration of your ESPP into your overall financial plan is something you should discuss with your financial advisor -- and I am not a financial advisor -- let’s first look at how an ESPP works.

You’ll typically get an email or memo that says your employer is going to allow you to buy its stock at a discount, maybe something like 10 to 15%. If you choose to participate, the deductions are taken from your paycheck, just like your 401(k) contributions.

Employee contributions accumulate between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. Therefore, the stock is purchased in bulk at one point in time, along with other employees' contributions. These purchases typically occur every six months.

An employee can then sell those shares right away and lock in the gains from the discounted price he or she paid, or they can hold on to the shares for later.

If you'd like to hold your employer stock for preferred tax treatment, it’s wise to wait until at least one year after the purchase period and two years after the initial offer date. The gains will be taxed as long-term capital gains, which are typically taxed at a lower rate than ordinary income.

Note that there’s usually a limit to how much you can invest in an ESPP, perhaps up to $25,000 per year or 15% of your salary.

The ESPP could be a great way for you to invest at a discounted rate, if the payroll deductions make sense for your budget. Remember to balance this investment with all of your other investments, and if you work with a financial advisor, discuss how this fits in with the rest of your portfolio.

09/12/2018

At some point, families have to face the grim reality that they cannot care for a parent without help. Where that care is provided, and how skilled that care is, determines the cost. To have an aide come to the house for an eight hour day may cost about $200 if you use an agency; 24/7 care at home costs about $215,000 per year. A low-level of care in an assisted living facility cost averages around $5,500 to $6,000 a month. If your loved one needs skilled nursing care in a facility, expect the cost to start at around $8,500, depending on what kind of care they require. People often try to avoid agencies and facilities to save money, but there are significant issues involved since you then become an employer; you need not only to withhold and pay the employer's share of taxes, but also to carry worker's compensation and liability insurance; you need to pay overtime where required; and you may fall victim to a lawsuit from a caregiver who knows the system, knows you are trying to avoid the system to save money, and sues you.

Many people think they’ll have to spend their parents’ entire savings or assets, before becoming eligible for some type of government assistance. However, there are four ways to pay for elder care: your own money, long-term care insurance, Medi-Cal or the VA. You should ask an experienced elder law attorney to try and protect as much of their individual assets as possible. The sooner you begin the planning process, the more options you’ll have as far as the type of care and how long you’re able to pay for it.

An elder law attorney will discuss ways to protect the assets of someone going into long-term care. Strategies usually focus on leveraging the Medi-Cal and VA regulations.

In some situations, an elderly parent requires a significant amount of care, and his or her assets must be used to pay for assisted living or a nursing home. That can make things tense. The children may be anticipating inheritances to help with their own retirements, and they could be resentful when that money's being spent on mom’s care.

It's important for families to know that they can ask for help, when facing a crisis with an aging parent. Meet with an elder lawyer to learn about what options are available to help with the cost of care, and what resources exist in your community to help, as you and your parent adjusts to this phase of life.

As many of you know, my firm has a medical social worker on staff to assist families with the very issues discussed in this article because even when a family can afford the cost of care, the need for care and consequences of caring for a loved one create enormous stress. In my opinion, it is the stress that sometimes kills the caregiver spouse or child before the ill spouse or parent. Do not underestimate the stress -- it will not do your loved one any good if you die first.

09/10/2018

The Social Security Administration uses many factors to calculate benefit amounts for beneficiaries, and that includes marital status. Those who remarry late in life need to be aware of what could change as a result. This article from Investopedia’s, “How Remarrying Late in Life Impacts SS Benefits” explains the details.

If you’re widowed, you may want to wait until after age 60. If either you or your fiancé is widowed and getting Social Security benefits based on the deceased spouse’s work record, his or her age matters. A surviving spouse who remarries prior to age 60 becomes ineligible to receive benefits on their late spouse’s record. However, after your first anniversary with your new spouse, you become eligible for spousal benefits based on their work record.

Couples in their late 50s with questions about the Social Security implications of their marriage can do the numbers. They can decide whether to delay their marriage to keep a widow’s benefit for longer, or if the spousal benefit from their new union will offer more financial security. As long as you’re married at least nine months before one spouse’s death, the surviving spouse is eligible for spousal benefits based on the second marriage.

A second marriage after divorce. If one or both members of the new couple is divorced, things are a bit trickier, because the Social Security Administration does allow divorced spouses to collect spousal benefits, based upon the work records of an ex-spouse, if the divorced beneficiary meets these criteria:

The original marriage lasted at least 10 years.

The beneficiary applying for divorced spousal benefits has remained unmarried.

The beneficiary applying for divorced spousal benefits has reached at least age 62.

If you are divorced from an ex who significantly out-earned you and your new fiancé, remarrying stops the ex-spousal benefits you’d otherwise get. Therefore, cohabitating without getting married, sometimes makes more financial sense for some couples.

What if you are receiving Social Security Disability Insurance? Beneficiaries who are receiving Social Security Disability Insurance (SSDI) may have the most difficult calculations when looking at a second marriage, because they’re subject to a family maximum benefit (FMB) calculation that limits the amount of money available for auxiliary benefits, like the dependent child benefit.

Calculate and compare these three amounts to determine FMB:

85% of the worker’s average indexed monthly earnings (AIME).

The worker’s primary insurance amount (PIA) based on full retirement age.

150% of the worker’s PIA.

If number three is the highest, the FMB is the higher of number one or two. If number one is the highest of the three, the family maximum benefits is number three.

A late-in-life marriage usually brings smiles to everyone’s faces. However, before walking down the aisle, make sure that you both understand the impact that your wedded bliss could have on your Social Security benefits. This is also the time to sit down with an estate planning attorney to make sure that your estate plan is updated -- in California, if you remarry after you have completed estate planning documents, and do not amend those documents to address your new marriage, then your new spouse has significant rights to your estate regardless of your intent. You also need to review and make sure other necessary documents, like powers of attorney and health care directives, are up to date.

Participants were asked about how their money helps or hinders their deepest aspirations for themselves and their children. The study found that participants with children worried less about making more money and impacting the world through philanthropy than “to be a good parent.”

Most parents don’t want to discuss money with their kids, and understandably so. It’s a daunting conversation, and can invite the question: “How much inheritance can I expect?”

However, when parents don’t communicate their hopes and dreams, the chances of a successful outcome aren’t great. A 20-year study at The Williams Group revealed the reasons why there is a 70% failure rate among affluent families, where family assets dissipate, and family relationships disintegrate. The research found that it’s connected to a family’s ability to have meaningful, productive and honest discussions about the effect of money and the purpose of the wealth.

Some well-intentioned parents will respond to their children’s question of “how much and when?” by creating a structure that does the protecting for them. They establish trusts that distribute assets to their children at age-appropriate milestones. Or they add a term in their will that says, “if there is any fighting, it all goes to charity.”

In some families, the parents don’t tell the children what their inheritance will be, thinking that not knowing will ensure that the kids don’t lose their motivation to achieve in their own right. However, children who are left in the dark may have other questions, like could they count on their parents if they wanted to start a business of their own, or would they be cut off if they ran into trouble.

Family conversations about wealth, work ethics and social responsibility that begin when children are young and continue over time, changing as their children mature, is far more likely to lead to a family that understands and respects the origins of the family’s wealth and the responsibility that comes with it. Some family meetings should be facilitated by attorneys, wealth managers, CPAs and/or family therapists familiar with challenges of families with wealth to better ensure that children and grandchildren will be prepared to be good stewards of their family's wealth.

Moreover, the parents and grandparents should be engaged and significantly in creating the estate plan and monitoring its evolution over the years and decades, to ensure that it reflects the values of the older generations, and contains the thinking and guidelines of the people who created the family wealth -- not simply the guidelines and thinking of the estate planning attorney whose computer generated the estate planning documents.

09/06/2018

Basic estate planning is an important thing for any family to have in place, at any stage of life. However, there are some complications that accompany estate planning, when a spouse is not an American citizen.

Speak to an estate planning attorney with in-depth experience in cross-border tax and estate planning. He or she will have deeper insight into the various transfer tax rules between the specific countries.

In addition, different rules apply to different family situations. For instance, if the wife is a U.S. citizen, all of her assets—regardless of whether they’re in the U.S. or Mexico—are subject to U.S. federal estate tax. However, for non-resident aliens, only certain assets held within the United States are subject to federal estate tax.

Those in this situation should also be aware of the lifetime estate/gift tax exemption. U.S. citizens have a lifetime exemption amount of $11.18 million per individual. Therefore, the first $11.18 million of their assets aren’t subject to estate tax. However, for non-citizens and non-residents, the exemption amount is just $60,000.

U.S. citizens also can transfer an unlimited amount of assets to their U.S. citizen spouse at death, without any estate tax consequences. If married to a non-resident, that unlimited marital deduction isn’t always applicable. However, you can gift up to $152,000 per year during your life to your non-citizen spouse.

It’s also worth noting that there are some strategies which can be used during a person’s lifetime to mitigate estate taxes. However, the right estate planning techniques depend on the specific situation.

This is a special situation that requires the knowledge of an estate planning attorney and accountant with experience in estate planning and tax for non-citizen residents. You’ll want your advisors to work together to make sure your plan is in place and to minimize any tax liabilities.

09/05/2018

The good news is that we are living longer. However, many of us will experience a time at some point in our lives when we are not able to take care of ourselves. We think of this more as a problem of the elderly, but there are young and healthy people who also become suddenly incapacitated. The best protection for you and your family is to have a plan in place, long before anything occurs.

Based on your financial situation, health, and age, long term health care and/or disability insurance might be a wise strategy. That’s because you can insure against loss of income and the direct costs of assisted living arrangements. In addition, there are some legal documents that can prevent many problems for your family, caregivers and yourself. Let’s review some of these:

If you have properties, business interests, and investment accounts, holding them in revocable living trust gives you several benefits. Most people want to be the sole trustee (decision maker), as long as they’re able to do so. Until and unless you’re unable to act for yourself, you control the assets and retain all powers to act. In the event you’re not able to act for yourself, a trust will designate a contingent trustee to act on your behalf, until you can resume the management of your affairs.

You can decide the circumstances in which they would take control and the powers they’d have to act on your behalf. Your trust might create the basis of your estate plan to avoid probate, minimize estate taxes, distribute your property as you want and protect your family from financial predators.

A financial power of attorney can help with decisions about your checking accounts, savings accounts, your home or personal property. You appoint a person to act on your behalf to pay your bills, etc. Legally, powers of attorney are just as effective as trusts. Practically, financial institutions are very reluctant to honor powers of attorney, so I still much prefer the creation of trusts to manage assets during incapacity.

Healthcare directives and medical powers aren’t only for end-of-life situations. They can be used if you suffer an accident or illness that leaves you unable to give or withhold informed consent.

Every state has its own requirements for these and other legal documents, so you’ll want to work with an experienced estate planning attorney in your state to create a plan. She or he will be able create a personalized approach that works best for your situation.

The goal is to have these documents in place, before anything unexpected occurs.

09/04/2018

Planning for medical expenses is a critical piece of planning finances for retirement. One of the largest healthcare data providers, HealthView Services, determined that in the best of circumstances—a healthy 65-year-old couple, for example—couples should expect to spend more than $400,000 to cover their healthcare costs. That includes premiums, deductibles, copays and out of pocket costs for hearing, vision and dental costs.

Even if your family is doing better than average in savings, deciding how you’ll handle health expenses in retirement is a critical task for any couple. Investopedia’s recent article, “A Couple's Guide to Healthcare Costs in Retirement,” provides us with several things you need to consider when planning a happy and healthy retirement for you and your spouse.

Have You Timed Retirement with Healthcare Costs? If your current health insurance is a family plan through your employer, retirement will affect your entire family. Consider all the options and select the ones that work best for everyone.

Delay Retirement: You may want to undergo a “big ticket” medical procedure covered by your current insurance. Working longer will allow you to save more to cover your future healthcare costs. Your current plan may offer more than Medicare or Medicare Advantage plans.

Move to Your Working Spouse's Plan: when you retire, move to your still-working spouse’s employer healthcare plan to delay applying for Medicare. If you don’t, you must apply during the seven-month period beginning three months before the month you turn 65 and ending three months after the end of the month you turn 65.

Check with Medicare: if your spouse works for a small company (fewer than 20 employees), you still may have to apply for Medicare or pay a penalty.

Examine Non-Medicare Coverage: if both you and your spouse plan to retire at the same time, and one is too young for Medicare, he or she will need individual coverage. If you have children under 26, who are still eligible to be covered under your insurance, remember that Medicare doesn’t provide family coverage.

COBRA: you could purchase COBRA under a former employer’s plan for up to three years. However, it’s expensive, since you have to pay the full premium. You could also get coverage for your spouse or kids under the Affordable Care Act provided through the health insurance exchange in your state.

Budget Each Spouse’s Insurance Needs. Many people forget that their former employer paid for a large part of their previous health insurance premiums. In retirement, you’ll likely be paying the full amount. When you’re on Medicare, each family member will need individual insurance, because Medicare doesn’t offer family plans.

Retiree Health Insurance: if you or your spouse will have access to retiree health insurance through your employer, see how much it costs, what it cover, and how it works with Medicare before signing up. Most retiree plans aren’t employer-subsidized.

Medicare Part A: most people qualify for Part A (hospitalization) at no cost, but if you do have to pay a premium, add it into your budget.

Medicare Part B: most individuals pay a monthly premium for Part B (Medical) of $134 a month. If your combined income is more than $170,000, you’ll pay more.

Medicare Part C: Medicare Advantage replaces Parts A, B, and often D. It’s private insurance, and prices vary based on coverage offered, which can include vision, hearing and dental. With Part C, you will pay a premium in addition to your Part B premium.

Medigap: This supplements Part A and Part B, so you must also have A and B to have Medigap. These policies don’t offer prescription drug Part D coverage. If you buy Medigap during your six-month Medigap open enrollment period, you can buy any level of coverage you want without a health exam. It may be worth purchasing the best plan that each of you can afford.

Medicare Part D: this is prescription drug coverage under Medicare. Premiums vary by provider. If the couple’s combined income is above $170,000, you’ll pay a surcharge.

Retirement Savings Resources. You and your spouse should have individual retirement accounts, in addition to any property or investments you own jointly. Withdrawals from these accounts can see that you have enough to pay health-insurance premiums, co-pays and other healthcare expenses. You may want to consider these savings options:

401(k) Plans: if both you and your spouse work, you should take advantage of available workplace 401(k) plans and max out your plans each year. If company matching is available, make it as high as possible.

IRAs (Roth or Traditional): if you meet the income requirements, open a Roth IRA for each of you. Qualified distributions are tax-free for both contributions and earnings with no required minimum distributions (RMDs). If your combined income is too high to invest in a Roth IRA, you can still invest in a traditional IRA.

Spousal IRA: a working spouse can take out a spousal IRA in a non-working spouse’s name to effectively double the amount your family can invest in IRAs.

Saver’s Credit: if you are a married couple with a joint income less than $61,500, you might qualify for a saver’s credit of between 10 and 50% of your IRA or 401(k) contributions up to $4,000. The amount you can take, is based on your adjusted gross income and is subtracted directly from what you owe the IRS.

Paying for Medical Expenses. Finally, decide how to pay for everything, including an allowance for inflation and unexpected medical expenses. Plan for these expenses with the right products, investments, and strategies, which may include:

Investments: these may include mutual funds and stocks. While they have no guarantees, their potential growth can help offset the effects of inflation, and they have the potential to create capital growth for late-in-life healthcare costs.

Health Savings Account: if you are in a high-deductible health plan at work, open an HSA and fund it while still working. This will give you funding for healthcare in retirement.

Annuities: this can provide an income stream for medical expenses.

Life Insurance: some policies can be used for medical expenses, such as combination policies with long-term care coverage and accelerated death benefit insurance. You can also use the cash value of a permanent life insurance policy to pay for care or expenses. However, if you do, it reduces the cash value and death benefit.

Convert to a Roth IRA: If you have large RMDs from traditional IRA accounts, look at converting some or all of those funds to a Roth IRA before you turn 70.

All of this may feel overwhelming, but with a head start on planning, you will be able to enjoy your golden years without overly worrying about any large medical costs. Speak with an elder law attorney who will help you understand all of these moving parts, and/or find people who can help you, and make sure that you and your spouse are prepared in the best possible way.